February 27 -Ryland Oil Corp., through its wholly-owned subsidiary Pebble Petroleum Inc., has entered into a new farm-out agreement with Calgary-based TriAxon Resources respecting an additional 53.25 sections of Pebble's acreage adjacent to the Flat Lake Bakken oil field in southeast Saskatchewan.
This is the third farm-out agreement between the company and TriAxon. Under the new agreement, TriAxon is required to spud two test wells, one by August 1, 2009 at a location of its choice on Exploration License EL 812 and the second by October 15, 2009 at a location of its choice on Exploration License EL 811.
TriAxon may elect to drill either vertical stratigraphic test wells or horizontal wells to test the Bakken formation. TriAxon must pay 100% of the costs to drill, complete and equip or abandon the test wells to earn a 50% working interest in the Bakken formation underlying the test well section. In the event a vertical stratigraphic test well is drilled, TriAxon will also earn a 50% working interest in the Bakken formation underlying an additional four contiguous sections. In the event a horizontal test well is drilled, Triaxon will earn a 50% working interest in the Bakken formation underlying an additional ten contiguous sections. Pebble will retain a 100% working interest in all other zones.
After drilling the initial test wells, Triaxon has the continuing option to drill additional earning wells at locations of its choice on the remaining farm-out lands to earn on the same basis as the test wells. If any wells are subsequently drilled on acreage in which TriAxon has earned its 50% working interest, each of Pebble and TriAxon will be responsible for payment of 50% of the costs of such wells and hold a 50% working interest, subject to the provisions of the operating agreement between the parties.
In addition to entering into the new farm-out agreement, Pebble and TriAxon have amended the earning provisions in their 22 section farm out agreement entered into in October of 2008. TriAxon has earned the Bakken rights underlying five sections by drilling a second test well under that agreement, after its initial well had to be abandoned for technical reasons. Pursuant to the amending agreement, TriAxon will earn 17 sections (as opposed to 11 sections) if it drills a third well as a horizontal well.
In addition, the spud date for the third well has been extended to January 31, 2010 so as to follow the two test wells to be drilled pursuant to the new farm out agreement. TriAxon's second test well completed under that farm-out agreement has very recently been put on production at approximately 90 bopd with an increasing oil cut trend.